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With A -2.1% Earnings Drop, Is Yue Yuen Industrial (Holdings) Limited's (HKG:551) A Concern?

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Simply Wall St
·3 min read
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Examining Yue Yuen Industrial (Holdings) Limited's (SEHK:551) past track record of performance is a useful exercise for investors. It allows us to reflect on whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess 551's latest performance announced on 31 December 2019 and weight these figures against its longer term trend and industry movements.

See our latest analysis for Yue Yuen Industrial (Holdings)

Was 551 weak performance lately part of a long-term decline?

551's trailing twelve-month earnings (from 31 December 2019) of US$301m has declined by -2.1% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of -4.0%, indicating the rate at which 551 is growing has slowed down. What could be happening here? Well, let’s take a look at what’s going on with margins and whether the whole industry is facing the same headwind.

SEHK:551 Income Statement April 16th 2020
SEHK:551 Income Statement April 16th 2020

In terms of returns from investment, Yue Yuen Industrial (Holdings) has fallen short of achieving a 20% return on equity (ROE), recording 7.8% instead. Furthermore, its return on assets (ROA) of 4.5% is below the HK Luxury industry of 5.1%, indicating Yue Yuen Industrial (Holdings)'s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Yue Yuen Industrial (Holdings)’s debt level, has declined over the past 3 years from 8.3% to 5.7%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 20% to 46% over the past 5 years.

What does this mean?

Yue Yuen Industrial (Holdings)'s track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Generally companies that experience an extended period of diminishing earnings are going through some sort of reinvestment phase Although, if the whole industry is struggling to grow over time, it may be a signal of a structural change, which makes Yue Yuen Industrial (Holdings) and its peers a riskier investment. I recommend you continue to research Yue Yuen Industrial (Holdings) to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 551’s future growth? Take a look at our free research report of analyst consensus for 551’s outlook.

  2. Financial Health: Are 551’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2019. This may not be consistent with full year annual report figures.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.